Big Gain on Home – and Military Home Issues


Today TaxMama® hears from Joe in the TaxQuips Forum.  Joe has just returned from 30 years of service in the armed forces. He hasn’t lived in his home for most of that time, so it doesn’t qualify for the personal residence exclusion. Now it’s time to sell. And Joe has a few questions about the great, big gain. Read his questions.

Ask TaxMama 

 Well My Friends,

You can read my full answer to Joe here.  It includes a tip to make this sale totally tax-free.

Instead of posting the answer here, I’d like to provide some homeowner tips to those serving in the U.S. military or the Foreign Service:

  • As you probably already know, your Basic Allowance for Housing (BAH) is not taxable income. But, did you know that if you use your BAH to pay mortgage interest and property taxes on your home you get to claim theses deductions – even if you’re not paying tax on the funds you use to pay these expenses?
  • Homeowner Assistance Program (HAP) payments to service members whose homes devalued due to a base closure are tax-exempt.
  • Normally, when you sell a residence, you must live in your residence for 2 years out of 5 in order to get the personal residence exclusion. However, persons on qualified extended duty in the U.S. Armed Services or the Foreign Service have two options:
    • You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on qualified official extended duty as a member of the Armed Forces. This means that you may be able to meet the 2-year use test even if, because of your service, you did not actually live in your home for at least the required 2 years during the 5-year period ending on the date of sale.
    • You can suspend this five-year test period for up to 10 years of such duty time.
    • A taxpayer is on qualified extended duty when at a duty station that is at least 50 miles from the residence sold, or when residing under orders in government housing, for more than 90 days or for an indefinite period.

And, of course, if you don’t meet any of these tests, when it comes to selling your home, you can read my advice to Joe. If he follows it, he’ll pay no taxes on the sale of his home at all – without qualifying for the above options.

And remember, you can find answers to all kinds of questions about military taxes and other tax issues, free. Where? Where else? At www.TaxMama.com.

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